February 19, 2008

Looking back: Conversations with the former NASSCOM President

Kiran Karnik was the President of NASSCOM from 2001 until last month, when he handed over the reins to Som Mittal (blog on Som coming soon as I also spoke to him). He has steered the Indian technology and services industry through some good and bad times over the past half a dozen years and it’s always a pleasure being able to get some time with him as he has to be one of the busiest people at the NASSCOM conference. The fact that he just handed over the presidency did not seem to lighten his diary commitments! Hilary Robertson and me eventually managed to pin him down and in a quiet corner of the Hyatt hotel we had a chat about the past few years heading NASSCOM and some of his thoughts on future issues for India.

Kiran opened our conversation by highlighting that when he came on board, there was considerable turmoil across the entire global IT industry: “It’s been six really exciting years for the industry in India. In some ways if I wanted to summarise the main challenges for India then I could say that one of them happened just four days before I started in my post; I started as NASSCOM president on September 15th 2001. 9/11 created a lot of uncertainty in the world at large and at the same time there was a post-2000 slowdown in IT spending as well as the threat of a recession in the USA, which is the largest market for Indian technology firms.” As if this wasn’t enough, Kiran found a major public relations issue about to take place in the USA: “Almost immediately after this period was the US presidential election where outsourcing and offshoring became a major policy issue, and all this when I was new in the job!”

Kiran feels that the industry did an incredible job. Indian companies managed to adapt and flourish when all of these general economic factors were against them. He said: “It’s great to do well in the good times, but the fact that the industry has continued to grow despite some of these challenges has demonstrated the maturity of the Indian industry and its ability to be nimble and to adapt to changing circumstances.”

I asked Kiran about Indian government support for NASSCOM and he offered glowing praise, except for the most recent budget: “The sense of the industry, until quite recently, was that the government has been very supportive, but the last budget contained a number of negatives for us. There were two or three things that are specific to the industry, but also some more general things. The first thing is really like the dog that didn’t bark. There was no extension of the STPI scheme [Software Technology Parks of India, a scheme to boost IT exports]. Then, almost like rubbing salt into the wound, was the announcement of a minimum alternative tax – so we might have expected an extension of the tax holiday, but we actually got a new tax instead! Then, there was a new tax on leased accommodation. Many companies in our industry prefer to lease offices, so this new service tax hits us as we are the industry that is the biggest leaser of commercial space.”

Though these tax measures came along like London buses (several all at once, rather than evenly spaced) Kiran was keen to stress that – in general – the government has worked well with NASSCOM: “I don’t want to sound too negative. By and large the government policy has been positive, except for these particular comments that are all related to the last budget. On the amendments to the IT Act that are forthcoming, this has been really very positive. In fact, it has worked in an excellent way as the government has worked with industry to frame the amendments to the act. It’s a huge step forward and will help us a great deal.” Kiran is referring to a major update to the main piece of Indian technology legislation, the IT Act of 2000. The new additions bring the legislation up to date and introduce more protection for data and criminal offences for cybercrime such as phishing.

Talent is one of the key issues driving NASSCOM at present. Kiran explained his views on sourcing new graduates for the industry: “There is a serious concern about graduates not being suitable for work. Some of us feel that we don’t just need more investment in the education system, what we need is actually structural reform. Without that reform you have a system based on the old state-supported system, which tends to be non-market-responsive. You could change pedagogy or courses over a period of 5 or 10 years, but this is a problem right now, as we really need our education system to respond to what the market needs. We need technical skills, we need soft skills, and we need communication skills. I wouldn’t say that they are not responding, but they are not responding quickly enough.”

The call for education reform is a strong one. I can see many supporters of the NASSCOM voice, but then as always in this kind of debate, there are many who would prefer the status quo to remain – because that’s how it has always been. Especially those who think the private sector should have little or no link to education. Kiran gave me his thoughts on private sector companies setting up their own academies. He said: “The good thing is that most people also see the need for rapid reform. It’s a good thing that some of the larger firms are setting up their own academies and training people, but the small companies must rely on the product of the universities, so you can see a problem developing where smaller companies will have no access to suitable people. In this industry the small of today grows into the big of tomorrow and we need to nurture them, otherwise we are sacrificing our own future.”

Moving forward, Kiran see a number of key issues for NASSCOM to focus on, the first being talent and education as he just discussed. He adds: “The second is the very positive issue of the domestic market. It is growing very quickly and that is good for us, but there are initiatives we can get involved in to help that further, such as encouraging the spread of broadband. Third is innovation. We are convinced that we need to move towards that as the next stage. I don’t think it is just about additional sophistication, R&D, or high-end products, but at a very base level you can change something at the bottom of the pyramid. It can be a change in pricing, or a change in the business model.”

Of course data security has figured high on the NASSCOM agenda for the past couple of years and Kiran mentions this as a final point: “Finally, the systems of the future will depend a great deal more on data security and intellectual property rights. As you begin to innovate more you need more protection for your IP. You need data security, especially if we are processing even more domestic data. I’d actually like to broaden the agenda of data security into calling it a trust initiative – this is something really high in the NASSCOM agenda now.”

I like that final touch, getting away from hard industry terms such as data security and intellectual property and just calling it trust. India has built a great deal of trust thanks to the efforts of NASSCOM over (almost) two decades now. Kiran can depart for new challenges with a real sense of achievement, having steered the Indian technology and service industry along a steady course in some very choppy waters.